Analysts maintain ‘hold’ on HSL a er SCORE contract award
KUALA LUMPUR: AmInvestment Bank Bhd (AmInvestment Bank) has maintained a ‘hold’ call on Hock Seng Lee Bhd (HSL) a er the group was awarded by the Upper Rajang Development Agency (URDA) a RM24.7 million contract for the construction of the Ng Machan bridge and road upgrading.
The research firm noted that this latest award is under the Sarawak Corridor of Renewable Energy (SCORE) initiative, with a contract period of 18 months.
“The latest job has not materially changed its year to date (YTD) job wins of about RM700 million and outstanding construction order book of RM2.5 billion,” AmInvestment Bank said.
The research firm’s forecasts assumed job wins of RM1 billion in financial year 2019 (FY19F) and RM400 million annually in FY20 to FY21F, as it believed the bumper FY19F is unlikely to recur during its forecast period.
“We maintain our ‘hold’ call, forecasts and fair value of RM1.25 per share based on 10-fold FY20F earnings per share (EPS), at a premium to our benchmark forward target price-earnings (P/E) of eight-fold for small-cap construction stocks to reflect HSL’s niche strength in marine works or land reclamation.”
Overall, AmInvestment Bank remained cautious on the outlook for the construction sector.
It noted that the government has very limited room for fiscal manoeuvre given the still elevated national debt.
“In Sarawak, while the state could step in to fill the gap with state reserves-fuelled infrastructure projects, we believe this strategy (ahead of the state election which must be held by September 2021) may not be cast in stone.
“For HSL, the uncertain sector outlook is partially mitigated by its competitiveness due to its niche strength in marine works/land reclamation.”